News

07

Aug 2015

Bank lending to businesses is expected to rise

Bank lending to businesses is expected to rise this year for the first time since the financial crash of 2008 according to the EY Item Club.

Bank lending peaked at £575bn in 2008 but declined each subsequent year.

The EY Item club said that £4.3bn of extra lending offered by banks in the first 5 months of 2015 suggests a year-on-year rise.

‘With the economy growing at a steady pace and business investment set to rise at an annual average of 6.5% over the next three years, the forecast suggests that the days of lending contraction are in the past’, said the group.

They predict that mortgage lending will rise this year as the housing market strengthens. Lending will increase at an average of 3.8% per year until 2019. The rate of increase is at a slower rate than before the crisis.

Andrew Goodwin, senior economic advisor to the EY Item Club said, “With homeowners set for a sixth year running of historically low borrowing costs, the demand for mortgages should continue to grow healthily, albeit at a far from spectacular pace.

“But while a low interest rate environment is good news for the consumers, the prospect of a further year of squeezed interest margins is not what the banks were hoping for.”

The Bank of England (‘BOE’) has held interest rates at 0.5% indicating a possible rise in 2016. There are, however, headwinds which might adversely impact on the UK economy:- deflation, the EU referendum together with the failure of EU countries such as Greece. Access to readily available credit is the lifeblood of the UK economy and whilst the EY Item Club’s report expresses optimism, if SMEs are starved of credit finance problems, will they be able to shield themselves from adverse conditions?

After a number of years of businesses weathering the storm of the 2008 financial crisis, it may be that the UK will face further squalls.